Charitable Trust

Plain English

A charitable trust serves dual purposes: it provides income or support to the grantor or family members during a specified period, and then transfers the remaining assets to a qualified charity. These trusts offer significant tax benefits—the grantor receives an income tax deduction for the charitable portion, and assets eventually going to charity avoid estate taxes. Common types include charitable remainder trusts (which pay income first, then give remainder to charity) and charitable lead trusts (which give income to charity first, then remainder to family).

Example

Margaret creates a charitable remainder trust, funding it with $1 million. She receives 5% of the trust value annually ($50,000) for 20 years. After 20 years, the remaining balance goes to her favorite university. Margaret gets an immediate tax deduction and avoids capital gains tax on appreciated assets.

Used in a sentence

“A charitable trust allows donors to support causes they care about while receiving tax benefits and income.”

Related terms